Investing

MBA Course: Investing & Portfolio Management-Class 2

MBA Course: Investing & Portfolio Management-Class 2

By in Bond, Investing, Mutual Funds | 6 comments

Do I Need Bonds in my Portfolio? “The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelope our future” John Maynard Keynes One of the foremost economists of the last century succinctly states a reason to invest. Learn the simple principles of investing through this MBA series taken directly from the graduate course I recently taught in Investing & Portfolio Management. Don’t be intimidated, grasp this important investment concept in an easy to understand format. After reading this article you will gain a usable investing skill. As I mentioned previously, please follow these steps before beginning any investment program. Click here to get Invest and Beat the Pros-Create and Manage a Successful Investment Portfolio. Perfect if you’re interested in building wealth with investing. What Are Bonds?  Last class we talked about risk versus reward. In investing, the greater the risk, the greater the opportunity for reward or a high return.  Risk means that your investment is going to go up and down in value; with higher risk investments exhibiting greater volatility. The recent stock market plunge shows why you may want to temper investment volatility.  Before investing, it’s always important to understand what you’re investing in. So, what is a bond? A bond is a loan to a corporation, municipality, or government. When you buy a bond you are making a loan to the bond issuer. In exchange for the loan, you receive an interest payment. The amount of interest you are paid is directly related to amount of risk you are taking. (The interest in bonds is called a coupon payment). Buy a corporate bond from a corporation with financial troubles, you get a high interest rate because if that company goes bankrupt, you might lose all of your initial investment. Buy a U.S. government bond, you get lower interest rate, because your money is invested with a secure government who will pay you back your original investment when the bond matures. A government bond is the safest bond to buy; it also has the lowest interest rate. Riskier bonds pay higher interest rates. Bonus; Would You Invest in a 100% Muni Bond Portfolio? Why You Need Bonds in Your...

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Why Is the Market Down? What to Do About a Market Drop

Why Is the Market Down? What to Do About a Market Drop

By in Economics, Investing, Money Management | 2 comments

Learn What to Do About a Market Drop August 24, 2015 Friday was a wake-up call for investors who thought the markets only went up. It capped a week of pain and suffering across the major market indexes. In fact, this was the worst week for U.S. stocks in 4 years according to the August 22, 2015 Wall Street Journal headline article by E.S. Browning, “Stock Plunge Picks Up Speed”. With worries about China’s economy, Europe or specifically Greece still mired in debt, and lagging oil prices the markets are reacting. Investors are also on edge about a pending Fed rate hike.  Here’s where we are across the major stock market indexes: At Friday’s close the DJIA fell 10.1% from its record May high. The S&P 500 and Nasdaq had their worst single day drops since 2011. On Friday, there was a -3.52% plunge in the Nasdaq Composite index and a milder drop of -1.34% in the Russell 2000, a better representation of the total market.  But if you step back for a moment, you’ll notice that over the past 52 weeks, the Nasdaq is still up 3.7% and the S&P 500 isn’t even down a full percent. Now, that’s not too awful for a long term investor is it? To ease the pain a bit more, step back to 2012. During the last 3 years the annualized stock returns for all 4 indexes is quite healthy with  a bountiful 15.3% annualized gain for the Nasdaq with the DOW sporting the lowest, although still respectable 7.6% annualized return. So is there anything to worry about? Let dig into this subject a bit further. Why is the Market Down? Are you panicking now? Are you afraid you’re going to lose all of your investment money? Before you take any action, understand a bit about the investing and the economy. Investment markets are cyclical. They go up and down, just like business cycles. You can’t predict when they will reverse direction. And that is why you keep a diversified portfolio. Also, you may not be able to pinpoint exactly what causes a market to fall. Take a look at this chart for the S&P 500 from 1990 to 2015 (August 21,2015)...

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August Finance Reads-Sharpe, Buffett, Trump and More

August Finance Reads-Sharpe, Buffett, Trump and More

By in Debt, Investing, Links, Stocks | 2 comments

With the Chinese Yuan falling, Donald Trump rising, Greek debt still in the media, there’s plenty to think about. For a quick diversion, here’s some of the articles I’ve been reading recently. I hope you enjoy them as much as I did.  “Valuable Lessons From Warren Buffett’s Letter to Shareholders“, Cullen Roche of Pragmatic Capitalism – Cullen does a great job of pulling out the key takeaways from Buffett’s last years annual report. My favorite was “stop paying high fees”. My ‘ah-ha’ lesson was “risk is not volatility”. He referenced Buffett is saying that risk is actually not meeting your financial goals. Simple and true! How to Get the First Million Dollars“, Peter Anderson of Bible Money Matters – He took inspiration from the Quora question, “How did you make your first million dollars?”. The responses to that question gives insight into various ways to get to that 7 figure benchmark. My simplest solution to hitting a million at age 65 is to start at age 30 and invest $555 per month in a diversified portfolio of stock and bond mutual funds. (Assumes you average a 7% annual return.) Indexed Investing: A Prosaic Way to Beat the Average Investor; William Sharpe, Nobel Prize winner – This legacy work by founder of the Sharpe ratio and stalwart of modern investing lays out the importance of an index investing approach. This is a research-informed article and still important, more than a decade after it’s initial publication. (Now you know what a finance geek I really am) “The Power of Dividend Income“; John Dulin of Money Smart Guides – John explains how dividend investing exemplifies the magic of compounding. He graphically shows how reinvesting those dividends can really add up.  “If You Prioritize Stability; Don’t Prioritize Stocks“; PK at DQYDJ.com. I had a tough time picking an article to feature because I got caught up in the calculators and visualizations. PK is so smart and his data interpretations are fascinating. In this particular article, he takes the simple concept of ‘higher returns necessitates greater risk’  and expounds upon it.  “The Best Way to Pay Back Student Loans While in College“; Magnify Money. With student loan debt blanketing the media, this article is a down-to-earth view...

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Use the Premortem and Prevent A Big Investing Mistake

Use the Premortem and Prevent A Big Investing Mistake

By in Asset Allocation, Economics, Investing, Money Management | 0 comments

Do a Premortem to Avoid the ‘Buy High – Sell Low’ Problem We’ve all heard the old adage: Buy low – sell high But how many investors actually follow this ‘best investing practice’? Are you guilty of this big investing mistake? Turns out, there are reams of data about how investors consistently make this big investing mistake; buy high and sell low. You’ll learn about how this happens, and how to counteract this expensive wealth-reducing investing strategy.  Over decades of investing, I’ve seen this same big investing mistake replayed over and over again. Specifically, the market dives-investors panic and sell. Then, the market rebounds, but investors are still scared by the prior drop so they wait to buy back in. After a major price advance, investors gain their courage, and reinvest in the markets – only to watch a cyclical market decline soon after they got back into the market. Have you make this big investing mistake? Is Buy and Hold Finished? Read What Hulbert Says About this Market Timing>>>   Notice this chart of SPY ETF, a proxy for the S&P 500. From August 1995 through mid-August, 2015, there have been several market dives and peaks. There’s nothing unusual about this pattern. You’ll find normal economic and stock market volatility throughout history. The great stock market declines are called, systematic or market risk. Events such as the bursting of the tech boom in 2001 – 2002 or the mortgage market melt down and U.S. debt crisis in 2008-2009 cause systematic drops in the major U.S. stock markets.  The Big Investing Mistake “Many investors—both individuals and institutions—are moved to action by the performance of the broad stock market, increasing stock exposure during bull markets and reducing it during bear markets. Such “buy high, sell low” behavior is evident in mutual fund cash flows that mirror what appears to be an emotional response—fear or greed—rather than a rational one. For example, from 1993 to the market peak in March 2000, investors’ allocation to stock funds nearly doubled, and in the two years preceding that peak, as the market climbed 41%, investors poured nearly $400 billion into stock funds. Unfortunately, the stock market then reversed rather dramatically and returned –23% over the next...

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Oblivious Investor-Mike Piper

Oblivious Investor-Mike Piper

By in Asset Allocation, Investing, Personal Finance Luminaries, Retirement | 8 comments

Personal Finance Luminary-Interview with Mike Piper Welcome to an interview with Mike Piper, of the Oblivious Investor Website. This fourth interview for the Personal Finance Luminaries series continues with the mission to highlight and learn from outstanding personal finance educators. Mike follows Luke of Consummerism Commentary, Dr. Charles Richards, author of The Psychology of Wealth, and Kyle of The Penny Hoarder. Mike Piper has been a favorite blogger of mine for several years. In addition to his CPA designation, he is the author more than nine money related books including the newest Microeconomics Made Simple, and publisher of the well regarded Oblivious Investor Website. I admire Mike’s brevity and disciplined message. Piper is faithful to his message, “This blog is dedicated to spreading the idea that investment success is based upon stubbornly following a few (very simple) principles.” His recipe for success is simple, continue reading and learn more about author and website publisher Mike Piper! 1. What led you to transition from working for Edward Jones to writing books and publishing a website? There was a stage after working as a financial advisor and prior to writing books during which I worked as a tax accountant. Each tax season, I was flooded with tax questions from friends and former classmates. Eventually I decided to answer all the most common questions in a short book so I could simply refer them to that rather than answering the same questions over and over. As it turned out, complete strangers ended up buying the book on Amazon and giving it pretty good reviews. I was quite surprised that it ended up being a lucrative endeavor. 2. What is a typical day like for you? Most days, I spend about half my working hours answering emails from readers. The rest of the time is spent writing articles and doing research for articles. 3. How transferable is your work situation to others who might like to work from home and support themselves online? I think the business model could very easily be applied to other fields — any topic that people are looking to learn about. Write a book about the topic, then write a blog with short articles about related topics. Market...

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How to Benefit from Cyclical Investment Markets-MBA Lecture Recap

How to Benefit from Cyclical Investment Markets-MBA Lecture Recap

By in Advanced Investing, Economics, Investing, Mutual Funds, Stocks | 10 comments

Can You Benefit from Cyclical Investment Markets? In today’s market, a short term interest rate of 1% is highly coveted and difficult to find. The annualized 10 year total return on the S & P Market index of 7.60% during the last ten years is 2% below the historical returns of the 1928-2014 time period. In spite of the juicy market returns of the past 3 years, you may wonder, where are the average stock market returns of 9%? What happened during the first decade of the new millennium to bring down returns and can you benefit from cyclical investment markets? Here’s a taste of some of the global events that impacted stock market prices: Recession Mortgage Meltdown  Sub Prime Lending Crisis European Debt Crisis 911 Wars in the middle east Growth of China as a major world competitor There are always outside forces that play on our economy and investment returns. These forces are called systematic or market risk. This risk is unavoidable and plagues all market participants. No matter how diversified your portfolio is, you cannot avoid systematic risk. Read more; Is Buy and Hold Finished?>>> What is an investor to do about the cyclical investment markets? In reviewing the stock market returns from 1928 to 2014 one could assume that rates went smoothly upward at 9.6% per year. Actually, that average hides a bumpy road. Returns on stocks over that time period ranged from annual double digit losses to annual double digit gains. Growth in investing is fraught with ups and downs. Not unlike life itself. Click here for Free micro book-How to Invest and Outperform + Wealth Tips Newsletter Is There a Pattern to Economic Growth and What it Means for You? Economic growth typically follows a path that looks a bit like a roller coaster, with gradual increases, leading to a high point of strong economic growth, followed by slowing GDP and usually a recession. This type of growth is certain, where the mystery comes in is the “when”. Cyclical growth is a given; but when the trend changes is unknown.   This pattern means several things to investors. Investing is a long term endeavor. Don’t even think about investing any money you will need within...

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